Star casino echoes to revenue lift

Echo Entertainment
Group chief executive
Larry Mullin
predicts The Star casino in Sydney can sustain double-digit revenue gains on the main gaming floor and an even stronger performance in the VIP segment in the year ahead.

Mr Mullin told the Citigroup investment conference yesterday that a 10.5 per cent year-on-year increase in main gaming floor revenue since the September 15 opening of the harbour-front precinct had been achieved ahead of new gaming space that will shortly open.

At the same time, Echo’s share of the VIP market in Australia had risen from a historical low of 15 per cent to between 25 per cent and 30 per cent this month, “and it’s growing", Mr Mullin said.

“The revenue uplift is gaining momentum. You can see it in the quality of the patrons showing up – we’re getting people coming from all over. And yes, we are seeing an increase in spend per head."

The bullish forecast came ahead of last night’s opening of The Darling hotel adjacent to The Star and the addition of private VIP gaming salons and a new high-roller area by the end of the year.

But Mr Mullin cautioned that The Star still had a long way to go to shed the low-rent image of its Star City days.

Earnings growth would be steady rather than a quick snap back, he said. That has much to do with $37 million in pre-opening costs, spent on everything from advertising to staff training and a string of launch parties that has seen everyone from Leonardo DiCaprio to Stevie Wonder partying at the casino.

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“We hope that will change very quickly, but we’re spending that money so people will still be showing up in four to five years, not just for four or five months."

Commentary from some analysts, including Goldman Sachs, has centred on the anticipated earnings uplift already being priced into the Echo share price.

According to Goldman, Echo is trading at a multiple of 14.3 times estimated 2013 earnings, a comfortable premium to Crown’s 12.6 times earnings multiple.

That view was short-sighted, according to Mr Mullin and CFO Matt Bekier.

“I believe a lot of the pricing early on was people thinking something would happen fairly quickly," Mr Mullin said, referring to takeover speculation after it emerged that billionaire James Packer held a 4.9 per cent stake in the demerged casino company.

Mr Bekier said it came down to whether investors believed the company was only at the start of the turnaround process with more development in Sydney and a $625 million expansion and renovation in Queensland to come.

“If you believe we’re at the beginning of very steep growth, they’ll have to adjust their numbers," the CFO said.

“You’d have to believe that all this new investment won’t drive an earnings uplift to say it’s all priced in."